Thursday, March 24, 2011

Kaushik Basu Responds to My Review of His Book

Kaushik Basu is the author of “Beyond the Invisible Hand: groundwork for a new economics”, 2010, (ISBN 978-0-691-13716-2; see Amazon), which I reviewed on Lost Legacy last November. He has posted the following comment on Part 3 of my review and I repost it below because most readers do not scroll back to earlier posts and check for subsequent comments, four or more months later. (It is the policy of Lost Legacy to always report criticism of any of its posts in the interests of scholarly fairness.)

“Beyond the Invisible Hand challenges readers to fundamentally rethink the assumptions underlying modern economic thought and proves that a more equitable society is both possible and sustainable, and hence worth striving for. In Beyond the Invisible Hand, Kaushik Basu lays bare the implications of this gross misrepresentation of Smith’s theory which, he argues, has resulted in hampering our understanding of how economies function, why some economies fail and some succeed, and what the nature and role of state intervention might be. Kaushik Basu”

Comment:In the interests of fairness and to avert any suggestions or impications that I was unfair to Kaushik Basu’s book with my critique of his treatment of Adam Smith’s use of the invisible hand metaphor, I quote extracts from each of my three-part review below. Also note my measured praise for his book, tempered with my critique of the linking of the modern myths about the IH Metaphor to Adam Smith’s much restricted and specific uses of it on the two occasions in which he used it.

“I am reading a most interesting and, from the point of view of Lost Legacy, a most significant book. I refer to Kaushik Basu’s new book, published this month by Princeton University Press, “Beyond the Invisible Hand: groundwork for a new economics” (ISBN 978-0-691-13716-2; see Amazon).

“What makes it so interesting to me is its approach. It accepts, indeed celebrates, the Adam Smith ‘myth’, namely the one created by modern economists from the 1950s, that Adam Smith’s use of the metaphor of the “invisible hand” was a “great idea” directly linked to the modern derivation of the Welfare Theorems embedded in mathematical theories of general equilibrium (Arrow, Debreu, etc.). Basu does this without in any way realising or accepting that this myth is itself a myth …

… Its author has stepped towards my criticism of the modern myth, albeit without accepting my position on it, by showing that the modern myth has misled economists into confusing their models with reality (the economy does not function as their maths appear to indicate) and by re-drafting what is closer to what really happens (which “entails a leap of imagination”), he will show where the “Invisible Hand Theorem” ceases to hold, and why. I shall report on how he sets about this, because Basu’s book is the first serious study of the modern myth related to the ‘Invisible Hand’ I have seen anywhere.”

“Beyond the Invisible Hand: groundwork for a new economics by Kaushik Basu, 2010, Princeton University Press.

“Basu’s section in Chapter 3 on “Methodological Individualism” is worth reading by all neo-classically-trained economists. Individual utility functions do not simply aggregate across the society, which facilitates the mathematics but not an understanding of the real world. However, the reader should ignore the gratuitous linking of Adam Smith to the theories Basu justly criticises.”